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Building business in Asia Pacific New Distribution Models

Building business in Asia Pacific New Distribution Models. By Mark Bedingham, Moet Hennessy Asia Pacific Ltd. Regional Managing Director – Asia, Japan, and Australasia. Asia Today. CHINA GDP Growth*: 9.1% GDP: USD 1,472bn Pop n : 1.299 bn GDP/head: USD1,140. KOREAN GDP Growth*: 3.1%

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Building business in Asia Pacific New Distribution Models

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  1. Building business in Asia PacificNew Distribution Models By Mark Bedingham, Moet Hennessy Asia Pacific Ltd. Regional Managing Director – Asia, Japan, and Australasia

  2. Asia Today CHINA GDP Growth*: 9.1% GDP: USD 1,472bn Popn: 1.299 bn GDP/head: USD1,140 KOREAN GDP Growth*: 3.1% GDP: USD 521.4bn Popn: 47.9 m GDP/head: USD 10,880 HONG KONG GDP Growth*: 3.3% GDP:USD160.9bn Popn: 6.845 m GDP/head:USD23,350 TAIWAN GDP Growth*: 3.2% GDP: USD 281.9bn Popn: 22.6m GDP/head: USD12,552 INDIA GDP Growth*: 8.1% GDP: USD 585.1bn Popn: 1.055 bn GDP/Head: USD550 THAILAND GDP Growth*: 6.5% GDP: USD 140.5bn Popn: 64.2 m GDP/head: USD2,200 MALAYSIA GDP Growth*: 5.3% GDP: USD 102bn Popn: 23.7 m GDP/head: USD4,080 SINGAPORE GDP Growth*: 1.1% GDP: USD 91.4bn Popn: 3.407m GDP/head: USD21,710 * 2003 GDP Growth Rate Source: Economist Intelligence Unit, 2004 First Qtr Update HSBC Global Economics Report, Q3 2004

  3. Japanese Market JAPAN GDP Growth: 2.5% GDP: USD 4,317.8 bn Popn: 127m GDP/head: USD33,941

  4. Total Vol: 50.059mil Global Asia Wine Market Total Vol: 50.059mil Total Wine Market = Still + Sparkling Wine Source: IWSR, June 2004/Sopexa/Industry

  5. Key Still Wine Markets in Asia 2003 Estimated Total Value of Key Asian Still Wine Market 2003 Total Vol: 47.335 mil 9L c/s Source: IWSR, June 2004/Sopexa/Industry Total Vol: 20 mil 9L c/s Source: IWSR, June 2004/Sopexa/Industry

  6. Outlook for the Future Forecast volume growth in Key Asian Markets incl. Japan % Growth in vol (2009 vs. 2004): +29%

  7. The Consumer in Japan Life Style of Japanese wine consumersaged between 25-35years old

  8. Chinese Korean Thai Indian Asian Wine Consumers

  9. Japan: Where do they consume?

  10. Asia: Where do they consume?

  11. Japanese Wine Consumption Litre/per capita Still Wines Consumption per capita Tokyo’s consumption per capita is 2.7 times the National consumption!

  12. Purchasing Power Parity in China & Key Regions Shanghai’s GDP per capita is 4 times that of China, and Guangzhou’s is more than 5 times!

  13. Australia’s Position in Asia Value based on Import Value Total Volume of Still Bottled Import Wines

  14. Australia’s Position in Asia Total Vol. in K std cases: 1,052 444 570 20,000 1,575 388 571 168 600 21,540 Source: IWSR, June 2004/Sopexa/Industry

  15. Total Vol. in K std cases: 1,052 444 570 437 1,055 388 471 600 74 14,250 Australia’s Position in Asia Source: IWSR, June 2004/Sopexa/Industry

  16. Total Vol: 1,052K std cs Total Imported Value: USD 71m Total Vol: 444K std cs Total Imported Value: USD 61m Total Vol: 437K std cs Total Imported Value: USD 54m Australia’s Position in Asia Total Still Imported Wines Source: IWSR, June 2004/Sopexa/Industry

  17. Total Vol: 570K std cs Total Imported Value: USD 37 m Total Vol: 1,055K std cs Total Imported Value: USD 42 m Total Vol: 388K std cs Total Imported Value: USD 16 m Australia’s Position in Asia Total Still Imported Wines Source: IWSR, June 2004/Sopexa/Industry

  18. Total Vol: 471K std cs Total Vol: 74K std cs Total Imported Value: USD 2.4m Total Vol: 14,250K std cs Total Imported Value: USD 719m Australia’s Position in Asia Total Still Imported Wines Source: IWSR, June 2004/Sopexa/Industry

  19. Duty and Taxes : A Key Factor for Imported Wines

  20. Assumption: CIF = FOB Australia assumes Trade Margin of 30% due to no Importer’s Margin Duty and Taxes : A Key Factor for Imported Wines

  21. Assumption: CIF = FOB Australia assumes Trade Margin of 30% due to no Importer’s Margin Duty and Taxes : A Key Factor for Imported Wines

  22. Consumer Behaviour:The Success of Australian Wines in Asia In Asia, we can make out two distinctive market profiles:

  23. The Success of Australian Wines in SE Asian Markets – WHY? • New young generation / more open-minded wine drinkers start with New World wines • Traditional / ‘older’ generation wine drinks followed spirits-beer-red wine pattern • Australian wines are accessible wines for beginners - offer drinkability, fruit character and easy to understand varietal labels (easy to order cabernet sauvignon or shiraz) • Strong influence of multi ethnic cuisine, fusion and less reverence for the association between wine and food (French wine for French cuisine, Italian wine for Italian cuisine..)

  24. The Success of Australian Wines in SE Asian Markets – WHY? • ‘Cultural’ reference for many SE Asian markets is the ‘anglo-world’ (USA, UK, Australia) with many tourists and expatriates coming from these countries • Knowledge of English language and relative simplicity of Australian wine labels. • Geographic proximity with Australia and prime destination to immigrate, travel, study and do business.

  25. The Success of Australian Wines in SE Asian Markets – WHY? • Higher frequency of activities, influence from Australian trade (chefs, restaurateurs and hoteliers) in the region have given Australian wines an edge • Australian Wine Export Council • Austrade • More laid back, open-minded attitude very much in line with local mind-set, rather than the more formal and more ‘cultural’ French wines

  26. Consumption Trend (Total Wines) 4th Wine Boom: Explosion of French & Italian cuisine 1985 Source: Japan wines and spirits importers Association Old World Markets: The Case of Japan • Deeply entrenched in wine drinking tradition (more than 100 years) despite rapid growth in market in the last 20 years

  27. A high proportion of the 9,500 qualified sommeliers have a greater training in French and Italian wines 1000 Japanese chefs studied in Italy 2,500 Japanese chefs studied in France Italian Restaurant French Restaurant Italian wines stand for 90% of consumption French wines stand for 90% of consumption Old World Markets: The Case of Japan • Very strong fidelity to matching style of cuisine with wine origin – do not accept drinking Australian wines in French or Italian restaurants. • Fidelity is reinforced not only by consumers expectations but by the restaurants themselves • Japanese Chefs & sommeliers regard French and Italian wines as being more a part of the ‘true’ tradition of wine.

  28. Old World Markets: The Case of Japan • Approachability of Australian wine labels not much of an advantage in a country where general knowledge of English is weak • Communication / Publicity skewed towards Old World • Huge publicity on French and Italian wines in Specialist wine magazines even if they have smaller influencing power on their readers than in the UK or USA • Highly influential fashion and lifestyle magazines feature France, Italy and the USA, more than Australia

  29. Fashion & Lifestyle magazines • Circulation : 150,000-300,000 copies/month • Target: according to magazine type • Mainly feature on French/Italian/US wines Old World Markets: The Case of Japan • Specialist Wine magazines • Circulation : 30,000 copies/month • Target: Sommeliers/chefs • Mainly focused on French/Italian wines

  30. Old World Markets: The Case of Japan • Mass market – there is a great range of options for Japanese trade customers and consumers to source inexpensive wine • Chile has done well (and in the future Argentina?), brands such as Gallo are well established, Liebfraumilch still sells well. • Significant volume of sales between ¥ 300- ¥ 700 (AUD 5 – AUD 12) dominated by domestic brands (mostly local bottling). They are successful in occupying much of the supermarket shelf or as part of a beer company’s portfolio they achieve the lowest price pouring contracts. Domestic wines¥1,000> 84% Market Share by brand Ureshi Wine 13% Bistro 11% Bon Rouge 9% German Wines¥ 1,000>30% Market Share by brand Valckenberg 14 % (Liebfraumilch) GA Schmitt 12% Racke 7% ¥ 1,000> 65% Market US Wines ¥ 1,000> 78% Market Share by brand Carlos Rossi 13% Rivercrest 21% Franzia 9% Chile Wines ¥ 1,000> 49% Market Share by brand Concha y Toro 31 % Santa Carolina 10% San Pedro 9%

  31. The Future for Australian Wines How can we accelerate the growth in the large current and potential markets? How big is the prize?

  32. Blue Sky Projections 2003-2009 CAGR: 7% 5% 20% 4%

  33. What About China? • In 2003, imported wines market grew by 17% to 437K cases led by France (40%) and Australia (15%). But overall New World wines show the strongest growth rate (30% vs. 20% for Old World) • China has its own local wine production - new drinkers start with Local Chinese Brands such as Great Wall (2.5m std cases in 2003) and Dynasty (2.1m std cases in 2003). • Drinking French wines remains a status symbol and a way of displaying wealth and success. • To succeed in China, Australian wines need to become aspirational to urban young emerging ‘middle’ class aspiring to a trendy/contemporary lifestyle.

  34. Old World French wine industry is waking up and several producers are offering a new and more accessible market-oriented approach French and Italian wine industries will focus on China. New World Influence of growing numbers of Chinese travelling abroad (1st arrival in Australia around 9th Century!) China more open than Japan – less of a set mind-set, less fidelity/reverence towards cuisine/wine relationship. What About China? • China could be compared to HK. Strong growth of Australian and New World wines but no ‘domination’ like Singapore and Malaysia because:

  35. Watch Out (!) – Increasing improvement in quality of Chinese Wines • Increasing number of expatriates (Asians as well as Westerners) relocating to China • (impact on drinking culture) • Huge long term potential for expensive and Iconic wines – strong interest for Luxury brands • Strong and growing interest in European culture but many deep cultural traditions are (re-) emerging – expensive Chinese Restaurants, architecture, design, etc. What About China?

  36. What About China? • Major urban centres: • Beijing (Government, Culture, Business) • Greater Shanghai (Business, Culture) • Guangzhou / Pearl River Delta (South) (Business) • Explosion of International Hotel Chains & Restaurants • Olympics, Beijing 2008 • World Expo, Shanghai 2010 • Explosion of Hyper-market business –increasing distribution network (Carrefour, Shanghai; WalMart, Shenzhen; DairyFarm opening in 2006)

  37. Explosive growth of International Hotel Chains – “Lost in Translation” etc. Australian wine friendly F&B – high proportion being foreigners who are open-minded about New World wines, especially Australian wines Only in International 5-star hotels do Japanese restaurants succeed in selling a lot of wine New World (especially Australian) wine – a good match for Fusion cuisine which represents an increasing share of the restaurant market in Japan (Tokyo/Osaka) What About Japan?

  38. What About Japan? • Younger, wealthier consumers – more open to New World / Australian wines • Travel a lot especially to Australia, including young sommeliers - increasingly more Australian wine specialised on/off-trade premises being created

  39. Arisotei (New style Kaiseki restaurant in Aoyama) Arossa (Fusion restaurant specialized in Australian wines) Aoyama Aoyama What About Japan? • Also in Tokyo are some top-end Japanese restaurants (Kaiseki) in trendy places like Aoyama, Nishi-Azabu • Otherwise, 90% Japanese restaurants use Sake / Beer to go with meals

  40. What About Japan? • New Retail Licensing Laws: • Convenience stores and home delivery food companies (Pizza/Asian cuisine) can sell alcohol • Regular supermarkets can now sell liquor • More specialised food and wine offerings are available in supermarkets situated in affluent areas • Discounters will become less important (?) as these other outlets gain more influnece • At the moment, Convenience stores sell low/very low end wines

  41. Australian Wine Industry AREAS TO EXPLORE: • Communication • Wine Education & Programs • Distribution

  42. Communication • Brand Australia • Australian Wine Export Council • Conducts marketing activities in Europe, Japan, USA, Canada & Asia (through Austrade) • A number of good events organised in Asia region by AWEC – Trade Fairs, Consumer and Trade Tastings, and sponsored visits of key journalists and trade personnel to Australia • Austrade – assists entire Australian wine industry by presenting a collective and collaborative image development via its marketing activities in key export markets (have offices in most Asian markets)

  43. Key Points for Australian Wine Producers to Consider: • Emphasis on viticultural regions and diversity (ie) “Terroir”– especially relevant for Japan • Invitations to visit Australia - Lifestyle Press/Publications and TV stations with influential Lifestyle programs • Be more involved and influential with Japanese Sommeliers • Young Sommelier Award (?), Sponsored trade-visits to Australia (?), More visits to Japan by very famous winemakers (?) • Need of real commitment in investing in long term brand building activities • Better understanding and analysis of channel or distribution

  44. Wine Education Programs • Proper educational materials in the local language (e.g. Mandarin, Japanese) • Australian wine courses delivered in the local language – designed separately for the trade and the consumer – could be held locally and also in Australia • Recognition of the key prescriptors in each market (e.g. Japanese Sommelier’s Association) • Collaboration with the leading Tour operators from China, Japan, Korea and Taiwan to arrange properly structured wine tours (currently very ad hoc) to Australia in the correct language

  45. NE ASIA: • China – EXCEPTIONAL (CAGR 20+?%s) • Taiwan and Korea - GOOD • (CAGR 7% and 12% respectively, over Short, Medium and Long Term) • Japan - Short, Medium and Long Term growth • Market growth and market share growth • Scale opportunities are OUTSTANDING NE ASIA Growth Opportunities in Asia Pacific for Australian Wines • SE ASIA: • Singapore, Malaysia, Thailand, Philippines, Hong Kong, Indonesia (?) • CAGR 4-8% over Short to Medium Term • Long Term? • NEW LONG TERM MARKETS: • India • Vietnam

  46. Improving Distribution • Distribution is the most neglected area for all Australian wine companies, big and small Australian Wine Company (Export Manager based home) CLASSIC MODEL Local Agent • Adopted by most wine companies but some innovation emerging by establishing own subsidiaries or joint ventures • Still slow to adopt, even in major markets • No accident Australian wine companies attached to international groups develop most quickly! Australian Wine Company (Head Office in Home country) Australian Wine Company Local Market Subsidiary

  47. Distribution Models • Various models adopted by wine companies today: • Export Model • Local Subsidiary • Local Joint Venture • Joint Venture alliances with other Australian wine companies for developing specific overseas wine markets • Today, all of these models exists in Japan – French, Italian and US wine companies are present in each format

  48. Distribution Models • More control over Distribution, means: • More control over Pricing • Can work directly with Trade Customers • More control over Marketing and Communication • Add 20% to 40% to see-through Gross Margin • One the other hand, more risk and more initial cost

  49. Distribution Models – China? Completion of accession timetable of WTO membership in China means that all these models will be possible in China from January 2005 CHINA

  50. Distribution Models – China? • Wholly owned foreign entities (WOFE) prohibition on engaging in any sales activity for wine & spirits distribution in China will be abolished from 1st January 2005. • Today, companies set up in the Free Trade Zones (e.g. Waigaoqiao, Shanghai) can import and sell wine into China. • WOFE can set up companies outside the Free Trade Zones to get involved in consultancy services of wine & spirit business. 2004 OPERATION MODEL

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